Buying a house within the next 6 months.

In My Humble Opinion
1

Does anyone have any “gotchas” they can share?

The basics: I’m using my VA loan which has an interest rate of 6.5%. Looking to spend about $400k in Northern Virginia (Manassas area). I’d like to exchange thoughts and learn from others experiences buying homes within the past six months.

A couple of things I’ve noticed:

  1. as soon as I put my information on-line, I had a HUGE amount of e-mails and phone calls (an easy 50) within HOURS from mortgage brokers and I did this on Sunday morning.

What does this mean? Are they getting desperate?

  1. Looking on RE sites… I see things like:

Manassas, VA average asking price: $405k, average sale price: $350k

Does this mean what it looks to mean? People aren’t selling at $405k and are taking offers $50k lower just to sell the place?

  1. What is the truth about foreclosures? I’ve heard that oftentimes prior owners destroy the interior of their homes (either with purpose or through neglect), and they’re usually expensive the first few years with repairs and improvements. Is this really a viable route?
2

On all points you need to just do your own educational research and ignore any speculation on the short-term housing market. Nobody knows what will happen and people should buy when they actually need a house. It is very possible that housing prices will drop but mortgage payments will stay the same due to rising interest rates and a lot of people don’t consider that when there mind wanders to speculation.

That said, your possible loan sounds reasonable as long as it is a traditional fixed loan up to 30 years although 15 year mortages can be good if you can afford the higher payment (most people want a 30 year fixed mortgage). The firm advice I can give is to avoid adjustable rate mortgages because that is what people get burned hard by. Whe bought a house 6 years ago and I was irresponsible enough to not know that it was adjustable after the first 5 years. I got my new payment schedule after that and the bank suddenly increased the payments hundreds of dollars a month and put the interest rate at over 8%. That is how people get in real trouble but some fancy footwork on my part found a refinancing option that actually lowered our existing payments but it was a rather stressful few weeks and required some significant work. Fixed mortages are the way to go right now. 6.5% is rather low historically an it is completely reasonable and has a good chance of creaping up in the future (but I refuse to speculate myself).

Play around with on-line mortgage calulators for a couple of hours just so you understand what affects your monthly payments and by how much. Also, don’t cheap out on a housing inspector and ask around for a good one. You may get a price break if a significant problem is found or need to bail on the property completely.

Again, educate yourself about mortage types but I would still strongly recommend a 30 year fived (there are small subtypes within that category). Your possible lender should be a reputable one and I have a policy of completely ignoring any mortgage company that sends me solicitations.

3

Also, foreclosers and auctions can be a good deal but not as good as you may think. I have very wealthy family members that buy properties that way and they are experienced and brave enough to see a property for an hour and write a check for it the next day which is often the required timeline. It requires a lot of experience and is not recommeded otherwise.

4

Are you paying attention to the business news? This billion dollar Bear Stearns collapse is related to mortgage defaults. Sub-prime loans are defaulting at incredible rates, and more variable rate loans are due to reset in the upcoming months than have reset in past months.

And, the latest stuff. . .the bankruptcy filings of “American Home Mortgage” indicates that it has expanded beyond subprime.

Many people who have bought over the last few years are not going to be able to keep their homes, and that has NOT been priced in yet. There is a ton of supply.

Here’s the thing. The usual “cost of waiting” to buy a home is due to the risk that home prices are going to go up more than the value of your money. Even if there’s not a huge collapse in prices, I think that most people would agree that the risk of continued appreciation is pretty damn low right now.

Just wait. At least wait for the six months you mention, and see where things stand. It’s the biggest purchase you’ll ever make. Don’t make a huge mistake.

Here’s a washington post article on the “pounding” NOVA is taking right now.

5

Thanks for the reply.

I had planned already to go with the fixed rate mortgage, as I will always know what my [minimum] payment is for the duration of the loan. My account brother-in-law explained that people were getting properties solely for the purpose of flipping them. As recently as 2 years ago, speculators were buying houses 10-at-a-time with very low introductory interest rates (variable) because they didn’t plan on keeping them long. Now not only are they stuck with these houses (because they’re looking at big losses if they sell them), but their increased interest rates are making it difficult for them to even make the mortgage payments. Can’t say I have sympathy.

But I’m looking to get into a house that I can at least “fall in like” with to spend 10 or so years there then trade up. Fixed is definitely the way to go, and a 15-year mortgage is something that I’m still thinking about. I can afford it, but not as good as I can a 30-year :).

Thanks for info on foreclosures. I’ve always been a bit skeptical about them… when something seems too good to be true…

6

[QUOTE=Trunk]
Are you paying attention to the business news? This billion dollar Bear Stearns collapse is related to mortgage defaults. Sub-prime loans are defaulting at incredible rates, and more variable rate loans are due to reset in the upcoming months than have reset in past months.

And, the latest stuff. . .the bankruptcy filings of “American Home Mortgage” indicates that it has expanded beyond subprime.

Many people who have bought over the last few years are not going to be able to keep their homes, and that has NOT been priced in yet. There is a ton of supply.

Here’s the thing. The usual “cost of waiting” to buy a home is due to the risk that home prices are going to go up more than the value of your money. Even if there’s not a huge collapse in prices, I think that most people would agree that the risk of continued appreciation is pretty damn low right now.

Just wait. At least wait for the six months you mention, and see where things stand. It’s the biggest purchase you’ll ever make. Don’t make a huge mistake.

Here’s a washington post article on the “pounding” NOVA is taking right now.

http://www.washingtonpost.com/wp-dyn/content/article/2007/08/06/AR2007080601485.html
[/QUOTE]

I heard the news about American Home Mortgage and read that this could potentially create a domino effect of lending companies. That could be bad, right? I read that a potential fall-out could be that they begin telling home-owners that “Your balance is $251,239. You need to pay this by the end of the month or we’re taking the property.”

My lease is up next May, so I have time. And if worse comes to worse, I can always do a month-by-month lease. I’m just getting my ducks in line now – making sure I can get pre-approved, figuring out the prices of houses (and the REAL prices), understanding taxes and what those’ll be in the area that I’m looking, paying critical attention to pictures of the homes (why is there snow on the ground when this picture was taking? Why hasn’t this sold yet?) and laughing at the audacity of people who are asking outrageous prices for shitboxes :).

There are a TON of homes in NoVA for sale and from what I can tell, sellers aren’t budging much (unless you get someone who needs to sell the house NOW) because they stand to lose hundreds of thousands of dollars. When I moved here 1.25 years ago, it was the same picture. I’ve been waiting a while for a change and I’m getting tired of throwing money at rent. Do you really think it could be different in 6 months?

7

[QUOTE=DudleyGarrett]
I heard the news about American Home Mortgage and read that this could potentially create a domino effect of lending companies. That could be bad, right? I read that a potential fall-out could be that they begin telling home-owners that “Your balance is $251,239. You need to pay this by the end of the month or we’re taking the property.”

My lease is up next May, so I have time. And if worse comes to worse, I can always do a month-by-month lease. I’m just getting my ducks in line now – making sure I can get pre-approved, figuring out the prices of houses (and the REAL prices), understanding taxes and what those’ll be in the area that I’m looking, paying critical attention to pictures of the homes (why is there snow on the ground when this picture was taking? Why hasn’t this sold yet?) and laughing at the audacity of people who are asking outrageous prices for shitboxes :).

There are a TON of homes in NoVA for sale and from what I can tell, sellers aren’t budging much (unless you get someone who needs to sell the house NOW) because they stand to lose hundreds of thousands of dollars. When I moved here 1.25 years ago, it was the same picture. I’ve been waiting a while for a change and I’m getting tired of throwing money at rent. Do you really think it could be different in 6 months?
[/QUOTE]

6 months. A year. Yes, I do.

People can’t be stubborn forever. It costs them too much money.

You’re worried about throwing money away on rent? On a $400,000 house, with a 10% down payment, at a mortgage rate of 6.5%, your first year’s interest payment is going to be about $20,000.

Oh, yeah. . .you get to write it off you taxes. Bully for you. It really only cost you $15000. What’s your rent?

8

[QUOTE=Trunk]
6 months. A year. Yes, I do.

People can’t be stubborn forever. It costs them too much money.

You’re worried about throwing money away on rent? On a $400,000 house, with a 10% down payment, at a mortgage rate of 6.5%, your first year’s interest payment is going to be about $20,000.

Oh, yeah. . .you get to write it off you taxes. Bully for you. It really only cost you $15000. What’s your rent?
[/QUOTE]

$1630.

I’m getting a VA loan, so no down payment. I have a chunk of savings (not 10% quite yet of the expected mortgage yet, but it should be there) but I’d rather not tie it up in a mortgage. That’s probably going to go to a broker, with hopes of a 15-20% annual return.

9

My parents bought their house (the one that they’ve lived in since I was five) at a forecloser auction. They never saw the inside of it. It took them a little while to evict the previous owner, but they didn’t destroy the house or anything. They got a great deal and it’s worth three time what they paid for it in 1990.

10

Hey, Dudley, I hope you don’t mind if I glom onto your thread in lieu of starting a very similar one? I am a prospective first-time buyer, thinking about it because my parents have offered to gift me money toward a house. I am thinking condo or townhouse for now because I would have that and modest savings but nothing for big repairs or upkeep to my own place.

  1. Are there programs for first-time buyers? I was thinking something through the FHA, where you only have to put down 5-10%? I don’t want anyone to do the work for me, but if you happen to already know of this and can steer me in the right direction? The calculators seem to assume a 20% downpayment and I probably would have 10-15% only.

  2. What is the “normal” range of interest rates, or the high end I shouldn’t go above? I’ve been looking at mortgage calculators but I have no clue what rate is the highest I would pay, to know the extreme monthly payment. Is there an index to refer to for trends?

  3. Do you apply for a mortgage first, or find a place first? I tried to apply on-line to my bank but they asked for what property address I want to buy. I thought I could get a number that they’d be willing to lend, and then go shopping with that number in mind?

11

I’d suggest going to www.bankrate.com and playing with their mortgage calculators.
A loan for $400K at 6.5% for 30 years comes to a monthly payment of $2528. Add on an extra $250-$300 a month for property taxes and homeowners insurance and possibly PMI (private mortgage insurance due to small down payment) and your close to $3K per month.
If you can afford it great. Just know what you’re getting into.

Your pretty much in the driver’s seat as to your choice of homes. Between the foreclosures out there and people in desperate need to sell and the overabundance of homes for sale you can name your price and wait for a response.
Yes, there are some stubborn people who won’t budge on the price since they know they’re going to get burned on the deal but they can’t sit on the house forever (e.g. my neighbor who wanted to sell his place for $250K, wouldn’t budge on the price, sat on it for a year, took it off the market, just got foreclosed on last month.)

12

With all the uncertainty in the mortgage market right now, you have an excellent chance to get a steal of a deal. I’d find a place you really like, then research what the sellers paid for it. If they bought it in 2004-2006, chances are they were expecting to make a killing, and have a funky loan and are asking 25-50% more than what they paid for it. Offer 5-10% more than they paid (or less) and see if they bite. The worst they can do is say no.

No skin off your nose. There are probably a lot of people out there who are starting to hear from their lenders “Sell it or lose it”.

13

[QUOTE=DudleyGarrett]
… I have a chunk of savings (not 10% quite yet of the expected mortgage yet, but it should be there) but I’d rather not tie it up in a mortgage. That’s probably going to go to a broker, with hopes of a 15-20% annual return.
[/QUOTE]

Let me know how you manage that. I’ve certainly never been able to do it. I’ve had stuff go up over 50% in a short period, but a total 15-20% annually? I’m not even close, and neither are most mutual fund managers.

I don’t really have any advice to offer, but it sure sounds as though a buyer’s market is developing. As others have suggested, it’ll probably get even more attractive for buyers in the coming months.

14

[QUOTE=Hampshire]
I…Add on an extra $250-$300 a month for property taxes and homeowners insurance …
[/QUOTE]

In Northern VA, it’ll be something like twice that, FWIW. Our property taxes are over 6,000 a year (admittedly, we’re in a higher-priced place than the OP is looking for) and insurance is about 900 a year.

The property taxes are deductible however, so that also lowers the net monthly cost.

How could they do that? Unless the mortgage is delinquent, that is. They can’t just call the entire balance. Well, I suppose there might be mortgages which have “due whenever we feel like it” clauses but those would be extraordinarily rare, I imagine.

15

I just made an offer on a house today. We’ll see how that goes. My advice:

  1. Shop for a mortgage and house at the same time. You don’t need to supply an address to the bankers, you just put down that you haven’t picked a home yet. The reason they need it is to figure in transfer taxes and such. If you don’t pick a spot, they’ll guess at it. Choose numbers that you’re looking at and keep it consistent! If one more person says “Make sure to compare apples to apples”, I’ll puke. Ask for a Good Faith Estimate and see which one you like best.
  2. Go to the FHA website and check out what they have to say about questions to ask everyone.
  3. Find a home and some backups. It’ll give you a good idea what your money is worth.
  4. Ask your buyer’s agent what the average DOM (days on market) is. 90 is a buyer’s market, 30 is a seller’s market. The whole country is closer to the 90 mark. When you look at a property, find out what the circumstances are of the person selling. Is it an old person who’s been there for 27 years that can’t negotiate the stairs anymore, or is it a flipper that’s in it for the money? One is desperate to sell and doesn’t have a lot left on the mortgage (so it’s all profit) and the other is desperate to make a profit after all the hard work. That’ll give you an idea of how much to low-ball them for it.
  5. Don’t be fooled by the following farces that have been thrown at me: Mortgage interest is tax deductable- yeah, if you itemize your return. If you take the standard, like me, it’s all the same. 2: VA loans are the best- True only for some people. If you have no money down, it’s great. You also get a free appraisal (note: different than an inspection) But they charge a 3% financing fee and their rates aren’t always lower (it’s not right now). You may want a conventional loan to save yourself $12k.
    Any more questions?
16

[QUOTE=Lunar Saltlick]
but it sure sounds as though a buyer’s market is developing.
[/QUOTE]

I think we can rightly declare one to be in existence. If anything, it’s in the valley right now, and will bottom out in a year or two.

OP: If you’re living there for 10 years, don’t try to time the market by 6 month periods.

17

[QUOTE=Hampshire]
I’d suggest going to www.bankrate.com and playing with their mortgage calculators.
A loan for $400K at 6.5% for 30 years comes to a monthly payment of $2528. Add on an extra $250-$300 a month for property taxes and homeowners insurance and possibly PMI (private mortgage insurance due to small down payment) and your close to $3K per month.
If you can afford it great. Just know what you’re getting into.
[/QUOTE]

That’s what scaring me right now. Assuming I can bargain a condo down from $190K to $170K, $20K downpayment, mortgage payment at 6.5% is $950. But then there’s insurance, condo fees, utilities I don’t pay directly now (water/sewer) … I only pay $500 in rent so three times that is scary, even with my income being pretty good.

18

[QUOTE=IntelSoldier]
5) Don’t be fooled by the following farces that have been thrown at me: Mortgage interest is tax deductable- yeah, if you itemize your return. If you take the standard, like me, it’s all the same.

[/QUOTE]

Good point.
“Tax-deductible” in some people’s minds means “tax-refundable”. That’s simply not the case. It figures into your taxes as a number that brings your taxable income down.
Will you get money back on your taxes? Maybe/Probably, depends on a lot of other things about your income.
Will you get the $10,000 you paid in interest for the year back on your tax refund check? Hardly. Expect a couple grand at most.

19

[QUOTE=gigi]
2) What is the “normal” range of interest rates, or the high end I shouldn’t go above? I’ve been looking at mortgage calculators but I have no clue what rate is the highest I would pay, to know the extreme monthly payment. Is there an index to refer to for trends?
[/QUOTE]

That same website (bankrate.com) shows the typical daily rate most banks will offer people with basic to good credit.
Todays rate for example: 30 year fixed 6.22%, 15 year fixed 5.90%

20

[QUOTE=IntelSoldier]
I just made an offer on a house today. We’ll see how that goes. My advice:

  1. Shop for a mortgage and house at the same time. You don’t need to supply an address to the bankers, you just put down that you haven’t picked a home yet. The reason they need it is to figure in transfer taxes and such. If you don’t pick a spot, they’ll guess at it. Choose numbers that you’re looking at and keep it consistent! If one more person says “Make sure to compare apples to apples”, I’ll puke. Ask for a Good Faith Estimate and see which one you like best.
  2. Go to the FHA website and check out what they have to say about questions to ask everyone.
  3. Find a home and some backups. It’ll give you a good idea what your money is worth.
  4. Ask your buyer’s agent what the average DOM (days on market) is. 90 is a buyer’s market, 30 is a seller’s market. The whole country is closer to the 90 mark. When you look at a property, find out what the circumstances are of the person selling. Is it an old person who’s been there for 27 years that can’t negotiate the stairs anymore, or is it a flipper that’s in it for the money? One is desperate to sell and doesn’t have a lot left on the mortgage (so it’s all profit) and the other is desperate to make a profit after all the hard work. That’ll give you an idea of how much to low-ball them for it.
  5. Don’t be fooled by the following farces that have been thrown at me: Mortgage interest is tax deductable- yeah, if you itemize your return. If you take the standard, like me, it’s all the same. 2: VA loans are the best- True only for some people. If you have no money down, it’s great. You also get a free appraisal (note: different than an inspection) But they charge a 3% financing fee and their rates aren’t always lower (it’s not right now). You may want a conventional loan to save yourself $12k.
    Any more questions?
    [/QUOTE]

Excellent info. Thanks!

What type of loan are you going with? I had a broker call today and try to get me to do a 75/25. It actually came out to $100 more a month than the VA.

Also, this “adviser” (from the lendingtree.com) said that I should be careful with using mortgage brokers and deal directly with a bank. Any truth in that?